China casts huge shadow on Japan-CARICOM talks

Saturday 26 July 2014

Mexican President Enrique Pena Nieto (2-R), his wife Angelica Rivera (R), Japanese Prime Minister Shinzo Abe and his Aki on July 25 in Mexico

The word will not be spoken in any formal speeches and it won’t be mentioned in final statements and declarations, but it will be talked about in the corridors and it will be at the back of everyone’s mind as Japanese Prime Minister Shinzo Abe visits five Latin American and Caribbean (LAC) nations from July 25 to August 2. The word is “China”.

Animosity between China and Japan has been steadily increasing over the last few years and relations are now tense at best and hostile at worst. From the Chinese side, according to Professor Zhou Yong-Sheng at the China Foreign Affairs University, “Japan can develop as a military superpower and boss around the region again”. He adds “China is no longer the country it was 120 years ago and, therefore, Japan should not commit the folly of starting a war with its western neighbour”. Those are fighting words and there have been skirmishes in both the sea and air over claims to sovereignty of five small islands known as the Senkaku in Japan and the Diaoyu in China. This had led to a military build-up in Japan that has been criticised by China on almost a daily basis. The heat generated over this was fanned into a flame by the Prime Minister’s insistence on visiting the Yasukuni shrine that venerates Japan’s war dead who China regards as invaders and criminals from the World War 11 occupation of Chinese territory.

The Japanese leader is visiting the five LAC nations in the wake of a very successful visit by Chinese President Xi Jinping in which he signed agreements that exceed US$10 billion with Argentina, US$5 billion with Venezuela, and US$1.8 billion with Cuba. Additionally, Xi offered to extend a line of credit of up to US$10 billion to members of the Community of Latin American and Caribbean states (CELAC) and to create a US$20 billion fund to finance infrastructure projects in LAC countries. China is also LAC’s second largest trading partner after the United States of America. In 2013, trade reached US$261 billion of which China enjoys a surplus. Nonetheless, Chinese investment, particularly in infrastructure, has helped to boost economies in LAC countries, including the 9 Caribbean Community (CARICOM) countries that have diplomatic relations with China.

The Japanese Prime Minister is very keen to boost trade with Latin America and the Caribbean which, while it nearly doubled over the past decade, still accounts for just 5% of Japan’s foreign trade. He will also want to expand Japan’s stock of foreign investment in LAC which is now lagging behind China at US$60 billion.

The name of the game is two-fold. The first is economic and includes access to LAC resources, such as oil, gas and minerals, as well as investment in large infrastructural projects that would give Japan a sizeable return. In this regard, Chile, Colombia, Brazil and Mexico are the main targets. The second part of the game is political influence particularly in Japan’s quest for a non-permanent seat on the United Nations Security Council (UNSC) for which elections will be held in October 2016. In both cases, Japan comes up against China.

While China is one of the five permanent members of the UNSC, it has been openly campaigning against Japan’s candidacy for the single UNSC seat that will be available to Asia. Japan is contending with Bangladesh whose candidature China avidly promotes in order to block Japan.

It is because of the vote for the UNSC that Japan is particularly interested in meeting the 14 independent CARICOM nations in Trinidad and Tobago on July 28. If they all vote for Japan, Prime Minister Abe would be delighted.

And that is where the challenge and the opportunity arise for the 14 independent CARICOM states. For the five that do not have diplomatic relations with China (they are tied to Taiwan), supporting Japan poses no challenge at all, but the others do have to be mindful of the consequences of supporting Japan for the UNSC. Dealing with this issue will call for skilful diplomacy.

The opportunity for the 14 independent CARICOM nations is the face-to-face meeting with Prime Minister Abe. The meeting presents the chance to bargain in the region’s interest just as the Japanese leader will be seeking benefits for Japan.

On the economic front, like China, Japan has been pledging large regional aid and investment packages to Africa and Southeast Asia, the value of which are US$43 billion and US $20 billion, respectively. It is unlikely that aid and investment of such sizes will be extended to all of the LAC countries. The LAC nations are a low priority for the Japan International Cooperation Agency (JICA) which provided only US$450 million to the entire region in 2012. This means that the CARICOM countries got only a fraction of that total.

It would be worth drawing that reality to Prime Minister Abe’s attention even as CARICOM leaders describe the plight of their economies and the restricted space in which they operate because of rules made by institutions in which Japan has a powerful voice. The face-to-face meeting with the Japanese Prime Minister offers a golden opportunity to remind him that his country has enjoyed a sizeable trade surplus with CARICOM countries for many years – a trade surplus that is greater than the amount of official development assistance Japan provides. In that connection, we note that over the 10 year period, 2003-2012, Japan has enjoyed a significant trade surplus with our member-states collectively. In 2012 alone, Japan’s trade surplus with CARICOM countries was US$621 million. The value of the trade surplus may not be huge in Japanese terms, but it is large for CARICOM states.

Additionally, the meeting with Mr Abe also provides a chance to lever support from Japan in critical areas such as: providing help to address debt (many of the CARICOM countries now have a debt-to-GDP ratio of over 60%); active support in the Organisation for Economic Co-operation and Development and the Financial Action Task Force for compensation for the high costs that result from compliance with their rules; financing for Climate Change adaptation; advocacy in the IMF and World Bank to make CARICOM states eligible for concessionary loans; and more Japanese investment in renewable energy and infrastructure.